Australia’s big three iron ore miners have banked a ‘never seen before’ total profit of $65.5 billion and Andrew Forrest, Fortescue’s founder and one of the gutsiest miners of them all has given a tip to investors by virtually doing a Ronnie Reagan and hinting “that you ain’t seen nothing yet!”

Undoubtedly, a lot of investors who’ve had a good run with our big miners might be wondering if it’s time to take profit before their share prices slide. And there are those who might subscribe to the view once offered by that great wit, Mark Twain that “A mine is a hole in the ground with a liar standing next to it.”

There have been times when question marks have been raised about Twiggy Forrest (as he’s also known) but with the company’s recent history he has really hit his doubters and critics for a huge six! This chart proves it.

Fortescue Metals Group (FMG)

This looks more like a tech stock than a miner, with a share price of 1 cent in 1999. Now it’s $21.32 and if the shares weren’t split in 2007 to boost liquidity and appeal to retail investors — one for 10 — they’d be a lot, lot higher! At the time of the split, it was around $64!

But miners can be riding high and then they can disappoint, and right now a lot of investors have bought BHP, Rio Tinto and FMG because of the huge dividends they’ve been paying recently.

“All three companies announced record dividends to shareholders, with Mr Forrest’s 36.74 per cent stake in Fortescue earning him just over $4 billion worth of dividends for the year to June 30,” the AFR’s Peter Ker reported.

The chart below of BHP’s share price slide from July 2014 to January 2016 not only saw its share price fall from around $36 to close to $14, its divided dived nearly out of sight!

BHP

It led to old heads in the market reminding investors that “you buy miners for growth, not income.”

Interestingly, BHP’s share price started falling in 2011 from a high around current levels of $44, and it was China’s subsiding demand that knocked the miners for a six back then.

And headwinds are starting to blow for our iron ore miners, which is why Twiggy is telling investors to ‘keep the faith’ and his company and its rivals won’t be downing tools and reducing their digging any time soon.’

Iron ore prices

What headwinds? Try these:

1. The iron ore price has fallen 32% from record highs recently.
2. China’s economic growth is slowing down.
3. China is playing tough trade games and doesn’t like paying such high prices. (Even our Federal Government has a $US55 a tonne forecast price for iron ore, yet it has been around $US240 and is now $US155!)
4. Vale, the Brazilian rival to our big three iron ore miners has had countless problems, including a terrible Coronavirus experience for its home country. But in 2022, it’s expected it will be a more competitive rival to our miners.

What about tailwinds?

There’s at least one and it’s a big one — a huge post-Coronavirus global economic boom, powered by very high vaccination rates and faster progress back to a more normal business, building and manufacturing world, which has to be good for iron ore miners.

When you think of modernisation, you think of steel in buildings, bridges, airports, cars, trucks and so on.

I recently interviewed Luke Smith, the Global Resources Portfolio Manager at Ausbil, who tipped a falling iron ore price. But he still liked the miners for the year ahead, especially BHP because of a more diversified group of products it takes to market, including copper, nickel, and soon potash.

Personally, I’m a holder of my mining stocks but I wouldn’t be as keen to buy more because of the challenges I listed above.

That said, Forrest has had a good record with Fortescue and the company has performed brilliantly since he appointed Elizabeth Gaines as CEO in 2017. I’m a believer in the iron ore story, at least for another year, but I had a lot more confidence a year ago that the miners could deliver killer profits and a great dividend than I do now.

Anyone needing help to stay on board with the miners should note this from Peter Ker’s yarn: “Fortescue chief executive Elizabeth Gaines also reminded investors that iron ore prices remained higher than the $US154 per tonne average for the year to June 30.”

“The current iron ore price of around $US157 per tonne is still higher than the average for all of FY21 [financial year 2021],” she said. “We are expecting a bit of seasonal rebound in steel demand for the fourth quarter of this calendar year, particularly from the [Chinese] construction sector.”

I hope Elizabeth is on the money.